Column: Capitalism That Works; The Lessons We Should Be Learning From Spying on Germany

As long as U.S. intelligence agencies are hell-bent on spying on Germany, why can’t they turn up some truly useful secrets? For instance, how to have an economy that bolsters a nation’s power and fosters a vibrant middle class.

The latest edition of the CIA’s World Factbook spells out how Germany succeeds and the United States fails at these crucial tasks. The book ranks the planet’s 193 countries by their current account balances (that is, their trade balances) in 2013. Germany comes in first, with a surplus of $257 billion. The United States is last, with a deficit of $361 billion.

The composition of the top and bottom 20 nations on the list provides an even more illuminating picture. Three kinds of nations dominate the top 20: oil exporters (Saudi Arabia ranks third), East Asian manufacturers-for-export (China ranks second) and Northern European industrial and social democracies (not just Germany but also Denmark, Sweden, the Netherlands and Norway — the last, swimming in North Sea oil, an energy exporter as well).

The most striking aspect of the bottom 20, by contrast, is the prevalence of English-speaking nations. Not only does the United States finish 193rd, but Britain comes in at 192, Canada at 189, Australia at 186 and New Zealand at 173.

Does using English condemn a nation to producing less at home and buying more abroad? Probably not — especially since Britain and the United States once boasted huge export surpluses. But something has driven a wedge between the Anglo and the Saxon economies — and that something is the divergent evolutions of their respective forms of capitalism.

Anglophone economies are characterized by lower levels of regulation and worker rights than their Northern European counterparts, and most crucially, particularly in the United States and Britain, they have become dominated by finance. As Wall Street and “the City” (Britain’s financial sector) have waxed, their nations’ manufacturing sectors have waned. Crucial to this evolution (or devolution) has been an embrace of shareholder capitalism: the doctrine, first propounded by Milton Friedman, that corporations’ sole mission is to reward their shareholders.

In the United States, boosting a company’s share value has become the be-all and end-all of corporate purpose — and as the average length of time that a shareholder holds a stock has dropped precipitously in recent decades, raising short-term profits has come at the expense of other corporate activities. Corporations have shuttered factories and shipped jobs abroad. They have abandoned apprenticeship programs (and, in the spirit of parricides complaining that they’re orphans, bemoaned the lack of adequately trained U.S. workers). They have reduced wages and eliminated benefits by obtaining their workers through temp agencies. They have slashed investment in research and development and long-term product development while devoting more funds to buying back their own stock, which causes the value of outstanding shares to rise. Of late, through the practice of “inversion,” they have legally expatriated themselves to reduce their U.S. taxes, even though the lion’s share of their revenue still comes from U.S. consumers.

This form of capitalism is great for rewarding major investors and corporate chief executives. According to Equilar’s annual report on CEO compensation, top corporate executives now derive 60 percent of their compensation from stock value, up from the 20 percent in 1993 documented by Cornell Law professor Lynn Stout. But by so elevating shareholders (and themselves) over their workers and their country, the CEOs of these finance-driven companies drive down living standards and erode the United States’ economic power.

The nations of Northern Europe, by contrast, have created economies that have enhanced their power and distributed wealth more equitably. In the Nordic countries, the world’s highest levels of unionization have not led to a decline in competitiveness but rather to highly trained work forces and major trade surpluses. In Germany, corporations are required to give workers a role in key decisions, and shareholders play a minor role in businesses’ funding and calculations. In consequence, the nation’s manufacturing sector is continually upgraded and the nation’s apprenticeship programs set the standard for developing skilled workers. Median compensation in manufacturing is a third again higher than it is in the United States — yet, counter to the wage-cutting conventional wisdom in American boardrooms and economics classrooms, Germany is No. 1 in trade and the United States is No. 193.

By virtue of the economic prowess it has attained through its system of industrial democracy and diminution of finance (and by having the euro as its currency), Germany has become Europe’s dominant power. If the CIA were genuinely concerned about our national security, that’s the lesson it would bring back from snooping on the Germans.